My opinion is that it should progressively increase. The bigger kingdom the bigger penalty. But I think that it is too big right now, I have two castles, one city and like 5 villages and more than half of my income takes penalty. Yep, I have a lot of land, but it is all connected, so I should be able to manage my fiefs without penalty. I have Fenada, Ismirala castle + village, Curaw + Bazeck and Mazen+ one village + Radoghir castle + Sumbuja. If you look at the map, my fiefs form a nice blob, so they should be manageable.
Also there is one problem with this penalty. When you are a vassal and your kingdom is dominating, you will get a lot of fiefs. But as a vassals you dont have any way (imo) to give land to someone. So king will reward you, but your net income may even decrease. So as vassal this problem is even bigger.